PBOC Sees Full Interest-Rate Liberalization In One to Two Years

The Chinese central bank has given a clear timeline of full interest-rate liberalization. PBOC governor Zhou Xiaochuan says deposit rates will be fully liberalized in one to two years at a press briefing in Beijing.

“Liberalising deposit rates is the last step of full interest-rate liberalisation,” Zhou says at the briefing, which is part of the annual meetings of the National People’s Congress. “ Personally, I think this is something we can do in one to two years.”

He adds: “ In the process of interest-rate liberalisation, there will probably be new opportunities which will bring higher returns. Interest rates will probably rise after we first remove control, but opportunities will dwindle as supply and demand are gradually balanced.”

Last July, the Chinese central bank removed a floor on interest rates for most loans. The move toward a market-based interest-rate system is part of the broader financial reforms promised during the third plenum, a key policy meeting in November. Liberalising interest rate is seen as necessary to regulate the country’s vast shadow banking system that has contributed to swelling local government debts.

Zhou also says China will carry out all pledges made during the plenum, including allowing private banks, overhauling the IPO system and further loosening capital controls.

“Some reforms can be carried out in one to two years,” he says. “Others probably can be done in three to five years.”

Shang Fulin, chairman of the China Banking Regulatory Commission, says at the briefing that Beijing will first allow five private banks in a pilot program. Alibaba Group Holding Ltd,
Tencent Holdings Ltd., as well as China’s biggest private conglomerate Fosun Group are among the ones waiting for permission.

Shang says private banks will first be established in Tianjin, Shanghai, Zhejiang province and Guangdong province.

“ After one private bank matures, we will move on to reviewing the next application,” Shang says. “As to when private banks will officially start operation, that depends on the banks’ own situation.”